On March 29, 2018, FERC issued an order granting a limited tariff waiver request by the California Independent System Operator Corporation (“CAISO”) relating to participation requirements for certain demand response resources in the California Public Utilities Commission’s (“CPUC”) Demand Response Auction Mechanism (“DRAM”) with delivery obligations between April-October in 2018 and 2019. The waiver, which was necessitated by recent changes in CAISO’s resource adequacy program, will allow CPUC-identified DRAM resources to meet their contractual and regulatory obligations. In granting the waiver, however, FERC stated that DRAM contracts executed after the date of the order and that do not conform with current CAISO requirements should not be eligible for the waiver.

To help ensure resource adequacy within the CAISO balancing authority area, CAISO both requires load serving entities (“LSEs”) to acquire, and resource adequacy resources to offer, certain capacity products during “availability assessment hours” (“AAH”). For the capacity resources at issue in this case, the AAH are a pre-determined set of five consecutive hours that, in general, must correspond with peak system demand. Under CAISO’s Resource Adequacy Availability Incentive Mechanism (“RAAIM”), resources that are available for 98.5 percent of the relevant AAH are eligible for incentive payments, while resources that are available for 94.5 percent or less are subject to penalties.

The CPUC administers two state-level resource adequacy-related programs in tandem with the CAISO’s program. The first is the CPUC’s own resource adequacy program whereby LSEs must, among other things, acquire certain types of capacity resources at specified times, called “measurement hours.” The second program, the CPUC’s DRAM pilot, allows LSEs to meet part of their CPUC-imposed resource adequacy requirements by procuring demand response resources that bid into RAAIM. In March 2017, the CPUC instructed LSEs to procure DRAM resources for delivery in 2018-2019.

On April 11, 2017, not long after the 2018-2019 DRAM procurement period was announced, CAISO notified stakeholders that it proposed to change the AAH for the April-October timeframe from 1pm-6pm to 4pm-9pm. Several parties, including the CPUC, raised concerns that the AAH change was out of sync with the CPUC’s measurement hours (which still maintain the 1pm-6pm timeframe) and would therefore cause difficulties for DRAM resources that had offered to provide capacity based on the CPUC’s requirements. CAISO filed a waiver request at FERC in August 2017 (“August 2017 Waiver”), requesting permission to keep its 2017 AAH in place for 2018, which FERC rejected without prejudice on October 24, 2017. There, FERC noted that, although there appeared to be a disconnect between the CAISO and CPUC resource adequacy requirements, CAISO’s initial waiver was overbroad and not tailored to the impacted DRAM resources.

CAISO filed the more limited waiver request on February 9, 2018 (“February 2018 Waiver”), requesting to exempt from the revised AAH affected DRAM resources with delivery obligations between April-October in 2018 and 2019. CAISO proposed to allow the CPUC to identify the resources eligible for an exemption based on its knowledge of the underlying contractual obligations of the DRAM resources. Several parties intervened in support of the waiver, including the CPUC and various demand response providers with impacted DRAM contracts. As those parties argued, the impacted demand response resources might not be able to perform during the revised hours and that, in contrast with the August 2017 Waiver request, the February 2018 Waiver request targeted a small amount of the total resource adequacy capacity available to CAISO (less than 0.6%). Another demand response provider, OhmConnect, argued that it should not be forced to take the exemption. CAISO’s market monitor opposed the waiver request, at least as it applied to 2019 contracts, arguing that the waiver would discourage participation from resources that can best support system needs.

FERC granted CAISO’s waiver request after finding, among other things, that it was submitted in good faith, addressed a concrete problem, and was narrowly tailored to affected DRAM resources. FERC noted that, because the CPUC would be identifying the affected resources, OhmConnect and other demand response providers could inform the CPUC and CAISO if they do not wish to be covered by the exemption. FERC also found that the waiver mitigated the market monitor’s concerns about adverse participation incentives, but nonetheless stated that, demand response resources making new commitments after the date of the order that tie them to the former 1pm-6pm AAH “should not be eligible for the exemption.”

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